Sellers In Trouble Market Share

5 comments
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One theory is banks have either worked off most of their REO or have found a way to stabilize their portfolios by moving inventory into rental trusts etc. There were some anecdotal reports of big funds buying up blocks of hundreds of houses and converting to rentals. That left the retail buyer to deal with what was left, namely the few sellers that really really have to sell, and who aren't underwater.

If you looks at the inventory history, we really haven't had "normal" market behavior since 2006 (inventory rising from Jan-Aug, then declining until Dec.) I would posit that we don't really know what a "normal inventory level" should be, only that some economists have defined a neutral market (one that doesn't favor buyers or sellers) at six months of inventory. In Sac, we have like 3 weeks.

Now you would think prices would be skyrocketing with only a 3 week supply, but sellers are being constrained by the creditworthiness of buyers, and by the large amount of rental inventory.

Honestly, a thorough analysis of the Sac housing market from 2000 to 2013 could probably serve as a PhD thesis!

Good points. I would think though that even without REOs there would still be room for a lot more inventory. Anecdotally, several people I know who bought around the bubble years are just now no longer underwater, so I would think there is some room to free up inventory - of course we haven't seen that.

How do you think interest rate increases (will this actually ever happen?) will effect inventory? And what happens in the meantime? It makes sense for prices to creep up, but we could be looking at a price hit if/when inventory finally comes online.

It depends on how high interest rates go. Rational investors have been using housing as a way to get return above traditional market strategies. Houses bought in Sacramento in 2009/2010 have been yielding 5-10% ROI (a $200K house fetching $1200/month is 7% gross return/year). Once interest rates rise above these return levels, I'm guessing they'll cut bait and move back to 10-years. But we're talking 5+ years from now IMO.

CR has a post up on Sac today showing a 30% market share for short sales. A search on Redfin shows 668 listings for Sac, 67 of which are short. So there's a big disconnect between what's being listed and what's selling. I would consider these investor-bought (or rental REIT-bought) houses pent-up future inventory.